Latest / Views from 6,230 / The Market Looks Calm. Look Beneath the Surface.

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The Market Looks Calm. Look Beneath the Surface. · Views from 6,230

• 0:10
  Ryan Nauman Host Views from 6,230: Welcome everyone to Views from 6230.
• 0:15
  Ryan Nauman Host Views from 6,230: I am Ryan Nauman, your host.
• 0:17
  Ryan Nauman Host Views from 6,230: Markets may look calm at the index level, but beneath the surface, investors are navigating narrow leadership, wide performance dispersion, shifting rate expectations, and questions about whether the enormous investment in AI will ultimately produce attractive returns.
• 0:37
  Ryan Nauman Host Views from 6,230: At the same time, the AI opportunity is expanding well beyond semiconductors into power, data infrastructure, networking, healthcare, you name it, and the other parts of the physical build-up.
• 0:52
  Ryan Nauman Host Views from 6,230: Well, joining me to make sense of this envi- environment is Paisley Nardini.
• 1:00
  Ryan Nauman Host Views from 6,230: Paisley is the head of investment strategy at Temah ETFs.
• 1:05
  Ryan Nauman Host Views from 6,230: We'll discuss what the headlines may be hiding, where capital is flowing within the AI ecosystem, why today's market could favor active management, and how investors can pursue emerging themes without losing sight of their core portfolio.
• 1:21
  Ryan Nauman Host Views from 6,230: Paisley, welcome back to Views from 6230.
• 1:26
  Ryan Nauman Host Views from 6,230: Such an honor to have you on.
• 1:27
  Ryan Nauman Host Views from 6,230: We talked some time ago.
• 1:29
  Ryan Nauman Host Views from 6,230: It was a fantastic conversation.
• 1:31
  Ryan Nauman Host Views from 6,230: We got along for being you from Wis- Minnesota, I'm from Wisconsin, made it through the whole conversation.
• 1:36
  Ryan Nauman Host Views from 6,230: Let's see if we can do it again.
• 1:38
  Ryan Nauman Host Views from 6,230: It's a big hurdle, especially during football season
• 1:41
  Paisley Nardini, CFA, CAIA: I'm optimistic.
• 1:43
  Ryan: So cautiously optimistic at that good old investing term, cautiously optimistic.
• 1:51
  Ryan: Well, thank you so much for coming on.
• 1:53
  Ryan: Really, it's an honor.
• 1:54
  Ryan: I'm glad I didn't scare you away after the first episode.
• 1:56
  Ryan: Can you just tell us a little bit more about yourself and Tema ETFs?
• 2:02
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: Yeah, no, thanks for having me back, Ryan.
• 2:03
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: Really enjoyed our first conversation.
• 2:05
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: It felt more like fun than business, so always back, like chatting amongst friends.
• 2:11
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: My background before I joined Temma, I've spent most of the last decade in a multi-asset construct.
• 2:17
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: What that really means is we're talking stocks, we're talking bonds, we're talking alts, and we're talking all of them together.
• 2:23
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: And I think that's what offers a lot of investors or clients that I work with an advantage is not only have I sat on the allocator side of the table at one point in my career, I've worked with
• 2:34
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: advisors for really the last ten plus years to understand, like how to build better portfolios, how to put the pieces together, and what risks loom.
• 2:43
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: And not to say that in a, scary way, but there's a lot of opportunity out there.
• 2:48
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: And frankly, I think a lot of the industry really touched their portfolio in the last decade.
• 2:53
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: I think the portfolios that we're sitting on today are the same ones that worked for us back in the, you know, the 2010s, and we're in a very different macro regime.
• 3:01
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: So like my goal is working with advisors and investors to understand what is the macro regime today, what does it mean for how you allocate assets?
• 3:09
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: And then within each asset class, whether it be stocks, bonds or alts, are you really thinking about taking on risk?
• 3:15
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: Are you getting rewarded for it?
• 3:16
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: Are you doing so in a prudent fashion?
• 3:18
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: So yeah, really happy to be here today to talk about some of those themes that you just mentioned.
• 3:23
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: But I'm also excited to have joined Temma during the third quarter this year to lead investment strategy.
• 3:29
  Paisley Nardini, CFA, CAIA Head of Investment Strategy Tema ETFs: We have a lot of really great strategies as it relates to active management and really thinking about the thematic parts of the market that are driving a lot of the excitement that I'll share with you today.
• 3:41
  Ryan: Yeah.
• 3:41
  Ryan: Fantastic, Paisley.
• 3:42
  Ryan: And just to go back, it, the content you create, I follow your content a lot.
• 3:46
  Ryan: It's great, great insight research.
• 3:50
  Ryan: I learn a lot from it.
• 3:51
  Ryan: I think our audience does too, just about like you said, it's interesting how portfolios probably are the same.
• 3:58
  Ryan: You know, maybe you shift a little bit from 60/40, but at the end of the day, it's been working.
• 4:03
  Ryan: We've had this fantastic bull market.
• 4:06
  Ryan: It's working, so it's probably like, why change?
• 4:09
  Ryan: Why, why fix w- if it's not broken?
• 4:12
  Paisley Nardini, CFA, CAIA: Exactly.
• 4:13
  Paisley Nardini, CFA, CAIA: Yeah, so I think a- again, it's not calling anybody lazy or complacent, and I think you, you hit the nail on the head, Ryan.
• 4:19
  Paisley Nardini, CFA, CAIA: It's like it has worked for the last 10 or 15 years, I think what we've seen in the last couple years is a lot of investors are discounting some of the noise.
• 4:29
  Paisley Nardini, CFA, CAIA: Rates obviously backed up.
• 4:30
  Paisley Nardini, CFA, CAIA: That hurt bond performance the last couple years.
• 4:32
  Paisley Nardini, CFA, CAIA: I think a lot of people are saying, "Okay, the pain trade is over in bonds.
• 4:35
  Paisley Nardini, CFA, CAIA: We're fine now."
• 4:36
  Paisley Nardini, CFA, CAIA: AI trade, it makes sense.
• 4:39
  Paisley Nardini, CFA, CAIA: So yeah, the more that we can shed light on how to more thoughtfully construct a portfolio, I think we'll all be better off
• 4:46
  Ryan: Fantastic.
• 4:46
  Ryan: Let's go back to you just started at Thema ETF, so congratulations.
• 4:51
  Ryan: What was behind that decision to move to join the team at Thema?
• 4:56
  Ryan: And what- and how does the firm approach thematic investing differently than maybe some other firms out there?
• 5:04
  Paisley Nardini, CFA, CAIA: My philosophy is that we're in a once in a generational, boom really in technology and innovation.
• 5:11
  Paisley Nardini, CFA, CAIA: If we look back at, past periods where, the computer was introduced and the internet I don't want, I don't wanna get too archaic and mention the railroad and the electricity, but in s- in some respect, what we're looking
• 5:22
  Paisley Nardini, CFA, CAIA: at right now, I absolutely believe will change the trajectory the world.
• 5:28
  Paisley Nardini, CFA, CAIA: And I know that's a bold statement, but from these companies that are developing these innovations, these technologies, and what we're starting to see now is this trickle-down effect with the launch of even AI agents.
• 5:39
  Paisley Nardini, CFA, CAIA: I'm excited to get my Christmas Tamagotchi of the Muse AI agent.
• 5:43
  Paisley Nardini, CFA, CAIA: The millennial in me really appreciated that, so thank you, Mark Zuckerberg.
• 5:47
  Ryan: Exactly
• 5:48
  Paisley Nardini, CFA, CAIA: all kidding aside, no way that in five or 10 years you and I are, operating in the same way that we are today on this podcast.
• 5:56
  Paisley Nardini, CFA, CAIA: Just the way that we dial into this podcast, the way that we prep for this podcast, the way that you publish this podcast is gonna be light years beyond where we are today.
• 6:05
  Paisley Nardini, CFA, CAIA: And so this gives us, as investors, this opportunity to really say, like, how can we lean into this and take advantage of this, the earnings growth that we're seeing from these companies?
• 6:15
  Paisley Nardini, CFA, CAIA: so all of that aside, why did I wanna join Temma?
• 6:19
  Paisley Nardini, CFA, CAIA: Temma's at really the forefront of a lot of this innovation.
• 6:22
  Paisley Nardini, CFA, CAIA: They're not taking a passive approach.
• 6:24
  Paisley Nardini, CFA, CAIA: They're leaning into this full on and saying, where are the opportunities in this market?
• 6:28
  Paisley Nardini, CFA, CAIA: Where can we add alpha for our investors through, bottoms up fundamental research of a stock selection perspective?
• 6:34
  Paisley Nardini, CFA, CAIA: And I know that many of you are listening and it's I didn't think active management worked anymore.
• 6:40
  Paisley Nardini, CFA, CAIA: And you're right.
• 6:41
  Paisley Nardini, CFA, CAIA: For the last, 10 or 15 years with the rise of passive, it's been really difficult in active management to source alpha.
• 6:49
  Paisley Nardini, CFA, CAIA: I would say the backdrop today is just starting to ramp up, and it is so ripe for active management because of the dispersion that we're seeing at the stock level in a lot of these indices, and we can
• 7:00
  Paisley Nardini, CFA, CAIA: get into that as well.
• 7:01
  Paisley Nardini, CFA, CAIA: But- TEMA is thinking about not only like the Mag Seven AI-related trades that so much have been focused on over the last couple years.
• 7:10
  Paisley Nardini, CFA, CAIA: What are the offshoots of that?
• 7:11
  Paisley Nardini, CFA, CAIA: What are the verticals, the supply chains?
• 7:13
  Paisley Nardini, CFA, CAIA: Where are the bottlenecks that feed into those, you know, larger companies that we're all very familiar with?
• 7:19
  Paisley Nardini, CFA, CAIA: That's where the alpha opportunity is, and really understanding like where we have supply dynamics that are constraining the production and the purchases of, these chips, these softwares, whatever these tools are that feed into this mega pool of AI
• 7:36
  Paisley Nardini, CFA, CAIA: demand.
• 7:37
  Paisley Nardini, CFA, CAIA: And so whether it be, initially at the enterprise business level, we're starting to now see trickle down into the consumer.
• 7:44
  Paisley Nardini, CFA, CAIA: And you mentioned this in kind of your opening, Ryan, is like we've moved past like the Nvidias and the Oracles and the Apples, and now we're thinking about like who's actually processing these chips?
• 7:54
  Paisley Nardini, CFA, CAIA: Where are the materials that go into these chips from a commodity perspective?
• 7:58
  Paisley Nardini, CFA, CAIA: Are we thinking about the infrastructure build-out?
• 8:00
  Paisley Nardini, CFA, CAIA: Are we thinking about the data centers?
• 8:02
  Paisley Nardini, CFA, CAIA: Are we thinking about how all of these speak to each other?
• 8:05
  Paisley Nardini, CFA, CAIA: And so these are themes that TEMA has launched and is looking to actively provide alpha for investors in, and so that's what got me so excited to join the firm.
• 8:15
  Ryan: I love it.
• 8:15
  Ryan: That's fantastic, Paisley.
• 8:17
  Ryan: And I agree.
• 8:18
  Ryan: So much to talk about there in terms of just the active side, active management.
• 8:23
  Ryan: I'm a firm believer doing some research.
• 8:25
  Ryan: There might be some spaces in the equity side where you just go passive and you let it ride, but there's a lot of spaces that active approach, you can get-- find some alpha.
• 8:37
  Ryan: It's hard.
• 8:38
  Ryan: That's why you gotta go to a good asset manager to find alpha, but it's out there, and you can locate it.
• 8:43
  Ryan: And we're gonna talk about AI here shortly, but I think it's fascinating.
• 8:46
  Ryan: We, we talked so much about NVIDIA and think that's the AI trade, but there's so much more.
• 8:52
  Ryan: If you're looking long term, who are the adopters of AI?
• 8:57
  Ryan: Maybe that's a longer term play, but a lot to talk about there.
• 9:01
  Ryan: I can't believe I'm about to say this, Paisley, but we're looking back at 2026.
• 9:07
  Ryan: I can't believe we, we've only have, like, three months left to go.
• 9:10
  Ryan: So now is that time to look back, review 2026 and where we started, where we're at now.
• 9:17
  Ryan: How would you characterize the market's transition from changing expectations of the Fed and interest rates to corporate earnings?
• 9:25
  Ryan: They're now doing most of the supportive valuations.
• 9:28
  Ryan: How would you characterize this transition of 2026?
• 9:33
  Paisley Nardini, CFA, CAIA: I would summarize, if I were to say like what really encapsulates where we've come from and where we're at today, we went from starting 2026 with rate cuts on the table Two, three quarters in, we're experiencing rate hikes.
• 9:48
  Paisley Nardini, CFA, CAIA: And if that doesn't summarize exactly what's been going on, I would say if I had to choose one word to describe this year, it's absolutely, it's whiplash.
• 9:56
  Paisley Nardini, CFA, CAIA: And as an investor, that's taken us on this, this bumpy journey, right?
• 10:02
  Paisley Nardini, CFA, CAIA: We started beginning of this year, like the 10-year Treasury was closer to 4%.
• 10:07
  Paisley Nardini, CFA, CAIA: Now we're above 5.25% as we record this.
• 10:11
  Paisley Nardini, CFA, CAIA: Like that has meaningful implications.
• 10:14
  Paisley Nardini, CFA, CAIA: Just bringing in a new Fed chair as well.
• 10:16
  Paisley Nardini, CFA, CAIA: As we know, the US stock market and investors broadly have been so tethered to monetary policy in the US since the financial crisis.
• 10:27
  Paisley Nardini, CFA, CAIA: And the fact that now the rug has gotten ripped out from under us from a forward guidance communication perspective with Warsh taking the helm, that invokes a lot of volatility, and we're seeing that play out from bond market
• 10:38
  Paisley Nardini, CFA, CAIA: volatility.
• 10:39
  Paisley Nardini, CFA, CAIA: We're always talking about the VIX, which is the implied volatility of the S&P 500, which we can come back to that, but it is quite subdued.
• 10:46
  Paisley Nardini, CFA, CAIA: It is not reflective of anything of cause concern under the surface, where bond volatility has spiked in recent weeks.
• 10:53
  Paisley Nardini, CFA, CAIA: And so monetary policy, bond markets, interest rates have really been driving a lot of the volatility this year, even more so than equities.
• 11:04
  Paisley Nardini, CFA, CAIA: And then of course, with all the geopolitical risks, the Strait of Hormuz closure, oil price volatility as well it's still here.
• 11:11
  Paisley Nardini, CFA, CAIA: It's not as front and center.
• 11:13
  Paisley Nardini, CFA, CAIA: For some reason we've just become complacent with a, h- $100 barrel of oil.
• 11:16
  Paisley Nardini, CFA, CAIA: It cost me $130 to fill up my gas tank.
• 11:19
  Paisley Nardini, CFA, CAIA: I live in Southern California, so that's on me.
• 11:21
  Paisley Nardini, CFA, CAIA: But it's crazy.
• 11:22
  Paisley Nardini, CFA, CAIA: And so where have we come from and where are we today?
• 11:26
  Paisley Nardini, CFA, CAIA: I think we've just this...
• 11:28
  Paisley Nardini, CFA, CAIA: we talked a lot about last year, the K-shaped economy.
• 11:31
  Paisley Nardini, CFA, CAIA: I think we've tried to push that nomenclature out 'cause people were fatigued from hearing about it.
• 11:36
  Paisley Nardini, CFA, CAIA: But it is this bifurcation in both the consumer level, the hard data versus the soft data.
• 11:43
  Paisley Nardini, CFA, CAIA: A lot of the hard data looks okay.
• 11:45
  Paisley Nardini, CFA, CAIA: I know we had a weak employment report here recently for the month of September.
• 11:50
  Paisley Nardini, CFA, CAIA: But for the most part, employment data has been pretty resilient this year, which is w- is what has allowed the Fed to hike rates 'cause inflation has been sticky.
• 11:57
  Paisley Nardini, CFA, CAIA: A lot of that driven by oil, however, so that might be transitory.
• 12:02
  Paisley Nardini, CFA, CAIA: But from a broader picture, the hard data says, "Hey, it's not too bad."
• 12:06
  Paisley Nardini, CFA, CAIA: Index returns, and we're up, double-digit returns for US equities this year.
• 12:12
  Paisley Nardini, CFA, CAIA: But the soft data is horrific, and we, whether it's confidence or sentiment, we're hitting historic lows.
• 12:20
  Paisley Nardini, CFA, CAIA: And so you start to take a step back as an investor and question, "Who's right?"
• 12:25
  Paisley Nardini, CFA, CAIA: And maybe neither side is going to be 100% correct.
• 12:28
  Paisley Nardini, CFA, CAIA: It's somewhere in the middle, but somewhere in the middle causes something to change, right?
• 12:34
  Paisley Nardini, CFA, CAIA: I doubt the fact that, everybody who feels horrible was just making it up, right?
• 12:39
  Paisley Nardini, CFA, CAIA: And so the pressures that we're feeling on the consumer level, the concerns around employment, the concerns around of obviously inflation, now we have the midterms as well.
• 12:48
  Paisley Nardini, CFA, CAIA: And so I think ultimately what we're doing is we're giving way from-- There was a lot of sector dispersion earlier this year, software versus semis.
• 12:56
  Paisley Nardini, CFA, CAIA: They keep playing the tortoise and the hare game with each other.
• 12:59
  Paisley Nardini, CFA, CAIA: I think all of this is gonna go to the wayside here in the rest of the fourth quarter as we lean into the midterms and what that means from a longer term investment perspective.
• 13:09
  Paisley Nardini, CFA, CAIA: So it's a lot.
• 13:10
  Paisley Nardini, CFA, CAIA: But I do think the one lining in all of this is that fundamentally speaking, many sectors within the S&P have seen resiliency and a continued growth in their earnings.
• 13:23
  Paisley Nardini, CFA, CAIA: And that's why today we can sit here with all of this noise and uncertainty and volatility and say, "From a valuation perspective, these sectors are not, overbought.
• 13:32
  Paisley Nardini, CFA, CAIA: They're actually quite attractive."
• 13:34
  Paisley Nardini, CFA, CAIA: And that becomes an increasing-- increasingly important technical indicator to look at bond yields start to rise, 'cause that goes back to my asset allocation background, is with bond yields rising, equities start to look less attractive.
• 13:48
  Paisley Nardini, CFA, CAIA: But from a valuation perspective, 'cause their growth is so strong, they still look pretty good.
• 13:53
  Paisley Nardini, CFA, CAIA: So I'll pause there.
• 13:55
  Paisley Nardini, CFA, CAIA: That's a lot, but it's been a whiplash of a year is how I would summarize it.
• 13:59
  Ryan: I think that's a perfect summary there, Paisley.
• 14:02
  Ryan: There's so much to unpack there.
• 14:03
  Ryan: I'm really glad you brought up the macro side first.
• 14:07
  Ryan: It's so interesting to me that, yeah, confidence, that soft data that you said, consumer confidence is, earlier this year was at its lowest point in decades, maybe ever, yet consumers continued to spend and markets continued to rip higher.
• 14:26
  Ryan: It, it, which really doesn't make sense.
• 14:28
  Ryan: A lot of times you think, well, consumer confidence is tanking, consumers are gonna stop spending.
• 14:34
  Ryan: But that's not the case.
• 14:35
  Ryan: They continue to spend, they continue to be resilient.
• 14:38
  Ryan: Markets continue to be resilient.
• 14:40
  Ryan: Yeah, so how do you...
• 14:42
  Ryan: And we're gonna get to this more, but how does an investor or financial advisor look at that and say some of the data is sell- saying a completely different story?
• 14:52
  Paisley Nardini, CFA, CAIA: Yeah.
• 14:52
  Paisley Nardini, CFA, CAIA: So this goes back to, and this is not meant to be a cop-out or just a, a lazy way to think about how to allocate assets, but we're in the midst of, like I said, a massive renaissance as
• 15:03
  Paisley Nardini, CFA, CAIA: it relates to upside and growth potential within the stock market, just due to the AI theme broadly across sectors and industries.
• 15:10
  Paisley Nardini, CFA, CAIA: But you marry that with where mortgage rates are today and where interest rates are and where gas prices are and food prices and all of these things that are pressuring the consumer.
• 15:20
  Paisley Nardini, CFA, CAIA: You can't have the economy do really well all of us suffer.
• 15:26
  Paisley Nardini, CFA, CAIA: At some point we're gonna stop spending, and I think a bit of what's causing-- 'cause I have this conversation every weekend, every restaurant's full, every flight is full or oversold.
• 15:35
  Paisley Nardini, CFA, CAIA: So people are traveling, people are dining out, people are entertaining themselves, they're going and having fun.
• 15:40
  Paisley Nardini, CFA, CAIA: I think a bit of that is the wealth effect, because portfolio values continue to go up Housing prices, even if they've gone a little bit sideways, have had a massive rally over the last, 10, 20 years.
• 15:52
  Paisley Nardini, CFA, CAIA: so I think a lot of people are saying, "I have credit cards that I can use at my disposal, but I have this wealth backdrop from my house and from stock market."
• 16:01
  Paisley Nardini, CFA, CAIA: And if you look at the share of households' investment within equities specifically within the market is at historical highs.
• 16:10
  Paisley Nardini, CFA, CAIA: So that kind of gives us a little bit of reasoning perhaps why people keep spending, is like they're looking at their portfolio values and they keep going up.
• 16:18
  Paisley Nardini, CFA, CAIA: So to them, that means they have money if they need to access it, at least they think they do.
• 16:23
  Paisley Nardini, CFA, CAIA: So I don't know.
• 16:24
  Paisley Nardini, CFA, CAIA: I would say there, there's a lot of uncertainty ahead of us.
• 16:27
  Paisley Nardini, CFA, CAIA: And so the, the way that I think about it is, again, going back to how do you allocate then?
• 16:31
  Paisley Nardini, CFA, CAIA Tema ETFs: How do you make an investment decision with all this noise?
• 16:35
  Paisley Nardini, CFA, CAIA Tema ETFs: I like to coin this prudent participation.
• 16:37
  Paisley Nardini, CFA, CAIA Tema ETFs: How can you participate in a way that's thoughtful, you know what you own and why you own it?
• 16:45
  Paisley Nardini, CFA, CAIA Tema ETFs: And that's goes back to that message on active.
• 16:47
  Paisley Nardini, CFA, CAIA Tema ETFs: And when I say active management, it doesn't always have to mean, I hold this uber-concentrated bottom-up portfolio.
• 16:54
  Paisley Nardini, CFA, CAIA Tema ETFs: You can be active in how you're thinking about even getting factor exposure.
• 16:57
  Paisley Nardini, CFA, CAIA: I'll give one example.
• 16:59
  Paisley Nardini, CFA, CAIA: This has come up a lot recently because a lot of comparisons in the market are j- always the market cap versus the equal weight, and so many investors invest in the S&P 500 equal weight as a way to
• 17:10
  Paisley Nardini, CFA, CAIA: diversify their large cap concentration risk.
• 17:14
  Paisley Nardini, CFA, CAIA: great in theory, but in practice you're picking up a midcap value tilt and you're weighting American Airlines the same as you are Nvidia.
• 17:21
  Paisley Nardini, CFA, CAIA: As someone who's recently been a passenger on American Airlines, if I had a dollar to put to work, I'm giving it to Nvidia, not American Airlines.
• 17:27
  Paisley Nardini, CFA, CAIA: So again, being thoughtful and intention- intentional in how you allocate is another way to just think about being active.
• 17:34
  Paisley Nardini, CFA, CAIA: So I think you, you stay in the market.
• 17:36
  Paisley Nardini, CFA, CAIA: There are plenty of fundamental reasons that we are not in the ninth inning of this game.
• 17:42
  Paisley Nardini, CFA, CAIA: but you do so in a way that you're just, again, you understand what you own and why you own it.
• 17:47
  Ryan: That, that's fantastic.
• 17:48
  Ryan: That's great advice, piece of- especially the equal weight versus cap weighted argument.
• 17:50
  Ryan: It's a very...
• 17:56
  Ryan: And I haven't thought of that way putting it that way, so that's very eye-opening.
• 18:00
  Ryan: It's a good way of thinking about it.
• 18:02
  Ryan: So let's talk real quickly about the midterm election.
• 18:06
  Ryan: Unless you're living under a rock, you see it every day, headlines, commercials, ads.
• 18:13
  Ryan: They're coming up whether we like it or not.
• 18:15
  Ryan: How much weight do you think investors should place on the current environment and the midterm elections?
• 18:21
  Ryan: Do we put too much weight into it?
• 18:24
  Ryan: Does it...
• 18:25
  Ryan: Should we just kind of, it's like a blip?
• 18:27
  Ryan: And how do we focus on the long term?
• 18:30
  Paisley Nardini, CFA, CAIA: We put too much weight on it from a negative sense.
• 18:35
  Paisley Nardini, CFA, CAIA: Investors, whether it be elections, politics broadly, geopolitical risk, war, it's not to under- under things on their own, but as it relates to the performance of the stock market, we historically place way too much emphasis, weight, and thought
• 18:53
  Paisley Nardini, CFA, CAIA: on these being catastrophic for our portfolios.
• 18:56
  Paisley Nardini, CFA, CAIA: I would say actually the opposite is true for midterm years.
• 19:00
  Paisley Nardini, CFA, CAIA: So we actually have some tailwinds, at least what history would tell us as it relates to the midterms.
• 19:07
  Paisley Nardini, CFA, CAIA: So negative returns, while the fourth quarter has been quite positive.
• 19:17
  Paisley Nardini, CFA, CAIA: So I preface that with we've actually had a pretty strong year thus far, so maybe take what I'm about to say with a grain of salt.
• 19:24
  Paisley Nardini, CFA, CAIA: But historically speaking, the fourth quarter in a midterm year has been positive almost 90% of the time going back to 1940.
• 19:33
  Paisley Nardini, CFA, CAIA: So seasonally speaking as well, irrespective of midterms, fourth quarter tends to do well.
• 19:38
  Paisley Nardini, CFA, CAIA: Small caps, for what reason, tend to do well also at the end of the year.
• 19:42
  Paisley Nardini, CFA, CAIA: So we have a lot of seasonality and tailwinds, I would say, at our back as it relates to this, and then you pile on the midterm as well.
• 19:50
  Paisley Nardini, CFA, CAIA: And we're looking at right now at least what some of the prediction markets are pricing in is a g- expected to be a gridlock.
• 19:57
  Paisley Nardini, CFA, CAIA: And so a lot of people might hear gridlock and think that's of course gonna be negative.
• 20:00
  Paisley Nardini, CFA, CAIA: There's uncertainty, there's people, fighting, different views.
• 20:04
  Paisley Nardini, CFA, CAIA: Oftentimes what that means is that it just does-- there's not gonna be any massive legislation, regulation that's put forth between now and the election.
• 20:12
  Paisley Nardini, CFA, CAIA: so what that can actually mean is positive for stock market.
• 20:15
  Paisley Nardini, CFA, CAIA: And so there's some other people out there that have dug way more into this from a data perspective, and I encourage you guys to all go out and read that, especially if you have clients that are calling you
• 20:24
  Paisley Nardini, CFA, CAIA: that are concerned about midterms.
• 20:25
  Paisley Nardini, CFA, CAIA: "We gotta get in the market, we gotta get out of the market," whatever their views are.
• 20:29
  Paisley Nardini, CFA, CAIA: Historically speaking, from around this time through the end of the first quarter is pretty strong.
• 20:34
  Paisley Nardini, CFA, CAIA: So I think, again, going back to your question, Ryan, we're placing too much emphasis on the midterms in a negative light.
• 20:40
  Paisley Nardini, CFA, CAIA: We should actually be looking at this as an opportunity to say, given all the strong fundamentals behind us and given the fact that we're likely headed for a gridlock it might be a good time to actually put some
• 20:50
  Paisley Nardini, CFA, CAIA: capital to work before year-end
• 20:52
  Ryan: Yeah, I agree.
• 20:53
  Ryan: I don't necessarily think gridlock's a bad thing.
• 20:57
  Ryan: It kinda keeps everything maybe obviously in balance so we don't go off the rails one way or the other, which,
• 21:04
  Paisley Nardini, CFA, CAIA: The other thing I might mention, though, is I would expect a lot of volatility the technology sector because there's so much scrutiny right now on both sides of the aisle around regulation on AI and technology broadly.
• 21:18
  Paisley Nardini, CFA, CAIA: Also a lot of scrutiny around data center build-outs.
• 21:21
  Paisley Nardini, CFA, CAIA: So those two topics are gonna be front and center, and they might impact stock prices throughout the next couple weeks.
• 21:27
  Paisley Nardini, CFA, CAIA: I think overall it's kind of a bipartisan agreement that technology is here, and it's here to stay, and we need to be competitive with other countries, i.e.
• 21:37
  Paisley Nardini, CFA, CAIA: China.
• 21:39
  Paisley Nardini, CFA, CAIA: and so I think everybody wants to do this, but they want to do it correctly and appropriately.
• 21:43
  Paisley Nardini, CFA, CAIA: And so there might be some volatility within that sector or industry.
• 21:46
  Paisley Nardini, CFA, CAIA: And then healthcare is actually a, a sector that we are quite bullish on, especially coming into this time of the year from the midterm perspective.
• 21:55
  Paisley Nardini, CFA, CAIA: There's opportunity, especially as it relates to AI advancements in drug discovery therapeutics and we actually think that this is a sector that's been maybe oversold the last couple years and is pretty ripe for some change in the next
• 22:08
  Paisley Nardini, CFA, CAIA: couple.
• 22:08
  Paisley Nardini, CFA, CAIA: So that's a, a sector that we're focused on.
• 22:11
  Ryan: I'm glad you brought that up because it, volatility, yes, it can add some angst to investors, but also opportunity, and it goes back to what you were talking about being prudent, prudent participation.
• 22:23
  Ryan: You might be able to participate and, you know, give you some opportunity to buy in maybe on some of these expensive AI names with the volatility, so
• 22:31
  Paisley Nardini, CFA, CAIA: Volatility should be seen as an opportunity within reason, of course
• 22:35
  Ryan: Yes.
• 22:36
  Ryan: Fantastic.
• 22:37
  Ryan: Lastly here, real quickly about the, finish up the talk on the economy.
• 22:42
  Ryan: Credit spreads, you talked about yields.
• 22:45
  Ryan: We're at, you know, as we record this, over 5.25 on the 10 year, and we've...
• 22:52
  Ryan: Doesn't look like it might be slowing or, or a ceiling there anytime soon.
• 22:56
  Ryan: But credit spreads have remained relatively contained despite all the angst out there, all the chaos, all the uncertainty.
• 23:03
  Ryan: Credit spreads don't really seem to be signaling anything on the horizon.
• 23:09
  Ryan: What do you think they're telling us about the underlying health of the economy, and what kind of movement would cause you to become more concerned?
• 23:19
  Paisley Nardini, CFA, CAIA: Yeah, so credit spreads have historically been viewed as a leading indicator for deterioration in the economy.
• 23:24
  Paisley Nardini, CFA, CAIA: And for many reasons, which we don't have time to get into today, the last, five, 10, 15 years, just the composition of the credit indices at large have evolved fairly meaningfully.
• 23:35
  Paisley Nardini, CFA, CAIA: And so I would say we should take it with some grain of salt that a credit spread widening or tightening is the end-all be-all.
• 23:42
  Paisley Nardini, CFA, CAIA: So I would just preface with maybe less valid than it was, say, 10 or 15 years ago in how we looked at credit spreads as a, an early kind of leading indicator.
• 23:51
  Paisley Nardini, CFA, CAIA: With that being said, I think credit spreads are reflecting the underlying resiliency that a lot of these stocks are experiencing from a fundamental perspective.
• 24:00
  Paisley Nardini, CFA, CAIA: Balance sheets are strong, cash ge- generation is strong, and the margins are improving significantly.
• 24:07
  Paisley Nardini, CFA, CAIA: I think that's a big part of what's driven a lot of the recent tailwinds in performance.
• 24:11
  Paisley Nardini, CFA, CAIA: And so credit spreads are not widening 'cause, as we know, credit spreads are, have a fairly high correlation to the overall kind of equity beta.
• 24:19
  Paisley Nardini, CFA, CAIA: And so because we're seeing resiliency in equities, we're also seeing resiliency within the credit spread component.
• 24:24
  Paisley Nardini, CFA, CAIA: Right now, investment grade spreads are, sub 100 basis points over Treasuries.
• 24:30
  Paisley Nardini, CFA, CAIA: High yield is around 300 These are in line with kind of average levels.
• 24:35
  Paisley Nardini, CFA, CAIA: They're not cause for concern.
• 24:36
  Paisley Nardini, CFA, CAIA: If you have somebody listening that lives and breathes credit markets, they're probably pulling their hair out as I say this, saying "Oh, spreads have widened the last couple weeks."
• 24:44
  Paisley Nardini, CFA, CAIA: Yeah, they've widened a bit.
• 24:45
  Paisley Nardini, CFA, CAIA: They've gone from, 60 to 80 basis points or 270 to 300 basis points in high yield.
• 24:51
  Paisley Nardini, CFA, CAIA: But if you back out and kinda look at what's cause for concern, it's not really till investment-grade credit spreads maybe get closer to 150 or 200, high yield spreads maybe closer to say, four to 500, that it would
• 25:04
  Paisley Nardini, CFA, CAIA: be meaningful enough for me to start saying "Yes, this is a warning signal.
• 25:09
  Paisley Nardini, CFA, CAIA: There's likely to be deterioration that's now being priced in through credit spreads."
• 25:12
  Paisley Nardini, CFA, CAIA: But for the time being, I would say pretty quiet on the Western front there.
• 25:16
  Paisley Nardini, CFA, CAIA: I do think the one part of the credit market that'll be interesting is, of course, all of the hyperscaler debt that's being issued, and what that means just from the composition of these indices.
• 25:26
  Paisley Nardini, CFA, CAIA: 'Cause as we know, fixed income indices are weighted by outstanding debt issuance, and so you'll start to see some of these mega cap companies become a increasingly large component of the indexes.
• 25:38
  Paisley Nardini, CFA, CAIA: And they, as we've seen in the equity market, can drive the composition of the indexes from a concentration perspective.
• 25:44
  Paisley Nardini, CFA, CAIA: So that's something I'd be more concerned by.
• 25:46
  Paisley Nardini, CFA, CAIA: And then I would just say, broadly speaking, with the backup that we've seen in yields, income looks kinda good right now.
• 25:53
  Paisley Nardini, CFA, CAIA: And I...
• 25:54
  Paisley Nardini, CFA, CAIA: it's crazy to say that but there's a bit of an asymmetric payoff profile within fixed income and bonds broadly, whereby, yes, could rates back up from five and a quarter to five and a half to 6%?
• 26:06
  Paisley Nardini, CFA, CAIA: Absolutely.
• 26:07
  Paisley Nardini, CFA, CAIA: Could rates, decline from five and a quarter down to four and a half to 4%?
• 26:11
  Paisley Nardini, CFA, CAIA: Absolutely.
• 26:12
  Paisley Nardini, CFA, CAIA: And so the tailwinds from a starting yield perspective and a duration profile would provide pretty attractive upside potential in holding some of these bonds.
• 26:21
  Paisley Nardini, CFA, CAIA: And then you start to compare again to the yield that you're getting from equities, not just a dividend yield, but the earnings yield on equities.
• 26:29
  Paisley Nardini, CFA, CAIA: Bonds don't look too bad.
• 26:30
  Paisley Nardini, CFA, CAIA: And so I would, as an investor, I would be looking at, as...
• 26:35
  Paisley Nardini, CFA, CAIA: if we s- if we stay here, go a little bit lower and everything's fine, no cause for concern.
• 26:41
  Paisley Nardini, CFA, CAIA: we start to see yields, like the 10-year treasury, back up to five and a half or even get closer to six, that's where I think we start to see pressure on equities.
• 26:49
  Paisley Nardini, CFA, CAIA: And we've already started to see over just the last two weeks a lot of strategists and individuals in the market coming out and saying this is a buying opportunity for bonds.
• 26:57
  Paisley Nardini, CFA, CAIA: I felt that way earlier this year and look where we are today.
• 27:00
  Paisley Nardini, CFA, CAIA: So maybe it's still a little bit early, but it's definitely front and center and something that we should be thinking about over the next couple months
• 27:08
  Ryan: I'm glad you brought that up because I just wrote about it, about...
• 27:11
  Ryan: I, I agree bonds I think are attractive now at, with the, with the treasury at over five and a quarter as we record this.
• 27:20
  Ryan: And, and the starting point, the yield starting point at five and a quarter, it's a lot more attractive and less risk, I think, than when it's at 2% yield in terms of duration.
• 27:31
  Ryan: So
• 27:32
  Paisley Nardini, CFA, CAIA: the other thing I saw too, just to play devil's advocate, is that, I mentioned some of these hyperscalers that are issuing debt.
• 27:38
  Paisley Nardini, CFA, CAIA: Many of these are highly rated mega cap companies.
• 27:42
  Paisley Nardini, CFA, CAIA: What are the chances that they're gonna experience default, knock on wood?
• 27:45
  Paisley Nardini, CFA, CAIA: But if you're getting paid over that already attractive Treasury yield and, an extra, 100 to 200 basis points for high quality debt, kinda feels like a slam dunk if you can lock in, 7% return through high quality debt
• 28:02
  Paisley Nardini, CFA, CAIA: issuance.
• 28:03
  Paisley Nardini, CFA, CAIA: So that's again, it starts to make you rethink your broader asset allocation nearing in on these yield levels.
• 28:11
  Ryan: And like you said too, there's some opportunity there for capital appreciation, so that total return play is definitely a, a possibility there too, an opportunity.
• 28:21
  Ryan: And it's...
• 28:22
  Ryan: I'm glad you brought up about the, the makeup of bond indexes, like the AGG.
• 28:28
  Ryan: Usually with- I- talk about concentration.
• 28:32
  Ryan: Y- typically, the AGG is made up of all treasuries for the most part.
• 28:36
  Ryan: But that's interesting that you brought up that maybe there's a little shift there.
• 28:39
  Ryan: You invest in the AGG index, and all of a sudden maybe you'll get a little bit more exposure to technology in the, in the corporate side.
• 28:48
  Ryan: So I'm glad you brought that up because
• 28:51
  Paisley Nardini, CFA, CAIA: just 'cause you, you mentioned it as well now, but the composition also this is something I posted about on X the other day, but the composition of the ag index has drifted, and I would consider it to be
• 29:03
  Paisley Nardini, CFA, CAIA: meaningful.
• 29:04
  Paisley Nardini, CFA, CAIA: Most listeners would probably say, "Eh, it's not that meaningful, Paisley."
• 29:07
  Paisley Nardini, CFA, CAIA: But the composition meaning that there's just been a pretty large increase in Treasury, bonds and notes within the ag versus securitized or mortgages.
• 29:18
  Paisley Nardini, CFA, CAIA: I would say at the expense of securitized mortgages.
• 29:20
  Paisley Nardini, CFA, CAIA: Credit issuance within the ag has drifted up just slightly, maybe from 20 to 25%.
• 29:28
  Paisley Nardini, CFA, CAIA: you're buying the ag today, you're getting way more Treasury exposure than you were 10 or 15 years ago.
• 29:33
  Paisley Nardini, CFA, CAIA: And I mention this because ultimately, again bond indices are driven by total issuance.
• 29:40
  Paisley Nardini, CFA, CAIA: And as we all know, the reason that we're experiencing a lot of these higher yields is because of kind of the fiscal dominance and the increased issuance at the Treasury level.
• 29:48
  Paisley Nardini, CFA, CAIA: And so again, is this something that people are paying attention to as they're allocating portfolios for their clients?
• 29:54
  Paisley Nardini, CFA, CAIA: Probably not on a daily basis.
• 29:56
  Paisley Nardini, CFA, CAIA: But it's something that we should actually be thinking about because maybe you're, if you're pairing your ag exposure with Treasuries as well you're probably doubling down on that.
• 30:06
  Ryan: Well, basically, it-- so we, we don't talk a lot about the concentration in some of these bond indexes like the AGG.
• 30:14
  Ryan: We all talk about it on the equity side and the concentration, so I think that's a perfect spot s- to talk about, you know, the top 10 companies now represent close to forty percent of the S&P 500.
• 30:27
  Ryan: So I also feel like we should probably focus that on the bond side too, because, you know, we don't wanna be overly concentrated or have a bunch of overlap there.
• 30:37
  Ryan: But how should investors determine whether that concentration on the equity side within, whether it's SPDRs or just general index, is intentional or simply an unintended source of portfolio risk?
• 30:54
  Paisley Nardini, CFA, CAIA: It's probably not fair of me to make this assumption, but I'm gonna say it.
• 30:57
  Paisley Nardini, CFA, CAIA: I think many investors have become very complacent because of the returns that we've seen, and rightfully if you don't have clients calling, if every year you're posting 15 to 20, 25% annualized return in your S&P indexed exposure, like
• 31:14
  Paisley Nardini, CFA, CAIA: why fix it if it's not broken?
• 31:17
  Paisley Nardini, CFA, CAIA: the concern for me is less so from a return perspective, and it's more in that risk lens.
• 31:23
  Paisley Nardini, CFA, CAIA: And so obviously being in concentrated is gonna give you more risk.
• 31:28
  Paisley Nardini, CFA, CAIA: But also too, the contribution of the top 10 names, those 10 stocks have started to see higher levels of volatility on an individual basis as well.
• 31:39
  Paisley Nardini, CFA, CAIA: so I think it's helpful 'cause I think a lot of us just assume that, concentration risk has been rising steadily over the last, 10, 20, 30 years.
• 31:48
  Paisley Nardini, CFA, CAIA: It is what it is.
• 31:49
  Paisley Nardini, CFA, CAIA: It's doing so in a linear measured fashion, so there's nothing t- to be concerned by.
• 31:53
  Paisley Nardini, CFA, CAIA: If you actually look at some of the visuals, the concentration of the top 10 names in the S&P 500 kind of bounced around 20% for decades, and it wasn't really until the last, five or 10 years that went
• 32:06
  Paisley Nardini, CFA, CAIA: exponential and has now doubled from 20% to 40%.
• 32:09
  Paisley Nardini, CFA, CAIA: So it was a pretty quick re-rating from a concentration perspective, which is why I think a lot of people just haven't paused to reflect.
• 32:15
  Paisley Nardini, CFA, CAIA: We hear the number, but what does it actually mean?
• 32:18
  Paisley Nardini, CFA, CAIA: I do think, too, the amount of information and the changing of leadership within the market broadly is moving faster than ever.
• 32:28
  Paisley Nardini, CFA, CAIA: We've all seen that, that visual I think that shows every decade the top 10 names of the S&P over time.
• 32:33
  Paisley Nardini, CFA, CAIA: We know it changes.
• 32:35
  Paisley Nardini, CFA, CAIA: We're so familiar with that changing slowly.
• 32:38
  Paisley Nardini, CFA, CAIA: One name falls out, and then two years later another name falls out, another name comes in.
• 32:43
  Paisley Nardini, CFA, CAIA: I feel like the last 36 months, the leadership is changing.
• 32:47
  Paisley Nardini, CFA, CAIA: We went from the Mag Seven to the Lag Seven.
• 32:49
  Paisley Nardini, CFA, CAIA: We're back.
• 32:50
  Paisley Nardini, CFA, CAIA: Is software in?
• 32:50
  Paisley Nardini, CFA, CAIA: Is semis in?
• 32:51
  Paisley Nardini, CFA, CAIA: Is it not?
• 32:53
  Paisley Nardini, CFA, CAIA: The amount of information that's coming in is causing a shifting of regime.
• 32:57
  Paisley Nardini, CFA, CAIA: And so you're hyper-concentrated in these names with increased volatility, your portfolio is taking on more vol.
• 33:05
  Paisley Nardini, CFA, CAIA: And I'll pair that with another topic I talk a lot about, the correlation between stocks and bonds has been positive since 2022.
• 33:14
  Paisley Nardini, CFA, CAIA: so if your vol-- if your equity sleeve is carrying higher vol than it has in the past and your bonds are no longer reducing that vol, you're just looking at a bumpier ride for your clients.
• 33:26
  Paisley Nardini, CFA, CAIA: And so that really comes back to like, why do we need to talk about the concentration risk?
• 33:30
  Paisley Nardini, CFA, CAIA: Why does it matter?
• 33:32
  Paisley Nardini, CFA, CAIA: really trying to reduce that experience, I would say, of your clients of having to hit every bump on the road along the way.
• 33:40
  Paisley Nardini, CFA, CAIA: How can we make it a smoother journey for them?
• 33:43
  Paisley Nardini, CFA, CAIA: so this goes back to being intentional, being thoughtful and it's not to say get rid of all passive exposure.
• 33:48
  Paisley Nardini, CFA, CAIA: There's a reason that can be beneficial from a cost perspective.
• 33:52
  Paisley Nardini, CFA, CAIA: Pay for some of the active management when you can reduce your costs in passive.
• 33:56
  Paisley Nardini, CFA, CAIA: But I think clients that have completely relegated to passive and are just saying, "It's fine, the market will work itself out."
• 34:02
  Paisley Nardini, CFA, CAIA: The market's resilient, it might but really understanding what's driving the risk within that and are you comfortable owning that?
• 34:08
  Ryan: Yeah.
• 34:09
  Ryan: It's all about that risk.
• 34:10
  Ryan: Are we getting compensated enough for the risks that we're taking on?
• 34:14
  Ryan: And it depends on the client, the investor, and who it is.
• 34:18
  Ryan: But right now, like you said, over the past 10 years or so, we have been.
• 34:24
  Ryan: It's hard to go against 20% returns, double-digit returns consistently.
• 34:29
  Paisley Nardini, CFA, CAIA: Yep
• 34:29
  Ryan: but like you said, I think now you said it spot on about the correlations between stocks and bonds have increased, and so you gotta go outside those areas to get some diversification and smooth out that ride.
• 34:44
  Ryan: So at the le- you know, surface, looking at the surface, volatility, you've talked about volatility, can appear relatively calm.
• 34:52
  Ryan: You know, it doesn't look like there's a...
• 34:54
  Ryan: You talked about the VIX.
• 34:56
  Ryan: VIX is kind of in a range here, but the individual stocks have experienced significant swings in performance dispersion.
• 35:05
  Ryan: The gap between top performers, bottom performers has widened.
• 35:09
  Ryan: What's creating that disconnect, and why might it favor, again, active management?
• 35:15
  Paisley Nardini, CFA, CAIA: Something really interesting is going on, and this was not my original findings.
• 35:20
  Paisley Nardini, CFA, CAIA: There's a lot of other really smart people out there that have shared some of these stats, and find it fascinating.
• 35:26
  Paisley Nardini, CFA, CAIA: Would highly encourage people to dig into this further, but it's pretty rare what's going on right now.
• 35:31
  Paisley Nardini, CFA, CAIA: So at the index level, everything looks A-okay.
• 35:36
  Paisley Nardini, CFA, CAIA: Returns are in, like I said, the double digits.
• 35:38
  Paisley Nardini, CFA, CAIA: Volatility is exceptionally low.
• 35:40
  Paisley Nardini, CFA, CAIA: then trying to understand, to your point, Ryan, like what's driving some of this and I think a lot of it has to do with just the dispersion underneath the surface.
• 35:47
  Paisley Nardini, CFA, CAIA: And if we really understand the composition of this, it's again, goes back to that concentration risk of so few names are driving the index returns.
• 35:55
  Paisley Nardini, CFA, CAIA: So why is this?
• 35:56
  Paisley Nardini, CFA, CAIA: How is this?
• 35:57
  Paisley Nardini, CFA, CAIA: How is that even mathematically possible?
• 36:00
  Paisley Nardini, CFA, CAIA: And it really comes down to some of these higher beta names.
• 36:03
  Paisley Nardini, CFA, CAIA: We talked about the leaders, the largest names have higher volatility, and so they have higher beta.
• 36:08
  Paisley Nardini, CFA, CAIA: And as we know, the S&P 500 has to have a beta of one, and the way that you do that mathematically is that if you have high beta names that are leading the index, you have to have offsetting
• 36:18
  Paisley Nardini, CFA, CAIA: names, which means negative beta names.
• 36:21
  Paisley Nardini, CFA, CAIA: so when you pair something that has high beta and low beta together, you essentially negate or you cancel each other out.
• 36:28
  Paisley Nardini, CFA, CAIA: You reduce that offset.
• 36:30
  Paisley Nardini, CFA, CAIA: And so what that means then essentially is you're getting an index level that feels calm at the surface with very offsetting profiles underneath.
• 36:39
  Paisley Nardini, CFA, CAIA: It's almost if you combine two assets in a portfolio, if they have low negative beta or low negative correlation, you reduce the overall volatility of your pro- portfolio.
• 36:49
  Paisley Nardini, CFA, CAIA: Same thing here.
• 36:50
  Paisley Nardini, CFA, CAIA: We're just talking about two different stocks.
• 36:52
  Paisley Nardini, CFA, CAIA: and so I think that's what's really fascinating and why we're seeing like so much noise and so much weakness underneath the surface and so much dispersion is exactly for that reason.
• 37:03
  Paisley Nardini, CFA, CAIA: So again, I think it's helpful sometimes to understand some of the mathematical reasons behind this
• 37:08
  Ryan: Paisley, so much of the AI investment, we talk about AI, investing in AI, and I'm afraid a lot of people just think buy Nvidia, buy the hyperscalers.
• 37:17
  Ryan: There's your AI troy- trade.
• 37:19
  Ryan: I think that's changing a lot.
• 37:21
  Ryan: We-- There's a lot of different layers to the AI trade.
• 37:25
  Ryan: Where are you seeing the next wave of spending and opportunity across the AI trade, whether it's power, infrastructure, memory, data centers, healthcare?
• 37:34
  Ryan: You mentioned healthcare earlier.
• 37:36
  Ryan: Where do you think are the biggest opportunities there?
• 37:39
  Paisley Nardini, CFA, CAIA: This is the most exciting part of all of this, in my opinion.
• 37:43
  Paisley Nardini, CFA, CAIA: And it's not to say some of the mega caps that have brought us to this point in 2026 didn't deserve to.
• 37:48
  Paisley Nardini, CFA, CAIA: They were wonderful, but that rising tide that lifts all boats is something of the past, I think, because of the dispersion topic that we've discussed here.
• 37:55
  Paisley Nardini, CFA, CAIA: So what's the next wave of AI spending?
• 37:58
  Paisley Nardini, CFA, CAIA: This really comes down to where is there demand?
• 38:02
  Paisley Nardini, CFA, CAIA: does that demand trickle down to?
• 38:03
  Paisley Nardini, CFA, CAIA: 'Cause as we know, there might be demand for, and I'm gonna use an analogy here, a bike.
• 38:09
  Paisley Nardini, CFA, CAIA: a bike just doesn't show up one day.
• 38:10
  Paisley Nardini, CFA, CAIA: You have to put the bike together.
• 38:12
  Paisley Nardini, CFA, CAIA: You need the chains, you need the handlebar, you need the wheel, you need the seat.
• 38:15
  Paisley Nardini, CFA, CAIA: And so as it relates to AI, where is there demand?
• 38:19
  Paisley Nardini, CFA, CAIA: Where are these companies spending?
• 38:22
  Paisley Nardini, CFA, CAIA: Where are consumers gravitating towards?
• 38:24
  Paisley Nardini, CFA, CAIA: And then what are the bottlenecks down that vertical or that supply chain?
• 38:28
  Paisley Nardini, CFA, CAIA: And it's those bottlenecks that become increasingly exciting as it relates to the next wave of AI spending, because we know if there's demand up here, we need to supply, to produce, and to deliver.
• 38:40
  Paisley Nardini, CFA, CAIA: And that's where I think a lot of these companies have been kinda sitting on the sidelines for years are getting a tap on the shoulder saying "Hey, I know we told you last week we need, four chips.
• 38:48
  Paisley Nardini, CFA, CAIA: Now we need 400 chips."
• 38:50
  Paisley Nardini, CFA, CAIA: And so it's not only d- the actual production, it's how a lot of these technologies speak to each other.
• 38:56
  Paisley Nardini, CFA, CAIA: So another thing is too, another analogy is we- we're building the factories, but we need to build the roads to allow trucks and cars to get into these factories.
• 39:04
  Paisley Nardini, CFA, CAIA: And so that's a visual of how this kinda trickles out or bleeds down into other parts of the market.
• 39:10
  Paisley Nardini, CFA, CAIA: And whether it's photonics and optical, whether we're talking about the electrification trade different parts of the supply chain itself moving from chips into memory, all of the statistics that I'm seeing and maybe I'm only looking at biased sources,
• 39:24
  Paisley Nardini, CFA, CAIA: just show continued strength and demand.
• 39:27
  Paisley Nardini, CFA, CAIA: And I think, again, we're moving from what's been a enterprise business level demand into more of a consumer demand with the launch of some of these AI agents, and now a lot of our AI tools being at our
• 39:38
  Paisley Nardini, CFA, CAIA: fingertips, whether we're opening our email or we're going into our brokerage account or we're on, any of the online platforms that we're relying on a daily basis, AI is everywhere.
• 39:48
  Paisley Nardini, CFA, CAIA: And the adoption rates are still extremely low.
• 39:51
  Paisley Nardini, CFA, CAIA: I think I saw a statistic this week that globally we're maybe sitting at 2% adoption.
• 39:56
  Paisley Nardini, CFA, CAIA: We've just scratched the surface, I think from an analogy perspective as well.
• 40:00
  Paisley Nardini, CFA, CAIA: I'll just stick on this theme, is thinking about, baseball innings, and I think a lot of people are, third inning, fourth inning.
• 40:05
  Paisley Nardini, CFA, CAIA: I think we're in the first inning.
• 40:06
  Paisley Nardini, CFA, CAIA: Maybe we're still warming up in the batter's box.
• 40:08
  Paisley Nardini, CFA, CAIA: But all of the excitement and emphasis that we're focused on today, I think we're gonna be focused in shifting our attention elsewhere in three months, in six months, 'cause it's gonna be coming at us so fast.
• 40:19
  Paisley Nardini, CFA, CAIA: And so as an investor, if you're just hyper-focused on whatever the index gives you in these Mag Seven names, you're gonna miss so much opportunity and so much of this life cycle and bringing this technology to market and
• 40:32
  Paisley Nardini, CFA, CAIA: this innovation.
• 40:33
  Paisley Nardini, CFA, CAIA: So from a CapEx perspective, of course, the risk is that these companies need to ultimately see a return on their investment, and so that's where I would say the fear-mongering starts to take foot.
• 40:42
  Paisley Nardini, CFA, CAIA: As of right now I think it's more just doom and gloom than anything factual that should lead us to be cautious, on any part of this market.
• 40:51
  Paisley Nardini, CFA, CAIA: I don't wanna say I'm, a blind AI bull, but I do think this is a once in a generational opportunity to add crazy returns to our portfolio and just see our lives change for the better
• 41:02
  Ryan: Yeah, I agree.
• 41:03
  Ryan: And it's also go back, it goes back to the active management piece.
• 41:08
  Ryan: I don't think it's one of those things where you can just throw, invest in anything that is AI related.
• 41:15
  Ryan: I think you need to take an active approach because there are risks out there.
• 41:18
  Ryan: I'm old enough to remember the dot-com era, and everything that had dot-com shot to the moon, and then a couple months later we realized, well, maybe that wasn't the best thing to invest in, companies that don't have earnings,
• 41:33
  Ryan: don't have cash flow, don't have product
• 41:34
  Paisley Nardini, CFA, CAIA: That's a good analogy, not because I think we're there, but because of it is not...
• 41:39
  Paisley Nardini, CFA, CAIA: Now is not the time to have a blanket approach.
• 41:41
  Paisley Nardini, CFA, CAIA: There are so many nuances and drivers from an investment perspective, from a capital perspective, from an actual valuation perspective that makes each of these unique.
• 41:50
  Paisley Nardini, CFA, CAIA: And so if you apply a blanket approach, you have to just be comfortable with the fact that there, there's gonna be some large drawdowns when this AI trade broadly starts to take a different form, 'cause it will.
• 42:00
  Paisley Nardini, CFA, CAIA: I don't think this is a technology that we build it and then we just enhance it year on year.
• 42:05
  Paisley Nardini, CFA, CAIA: I think what we're talking about today is green shoots of what we're actually gonna be, like, harvesting in the next couple years for AI
• 42:13
  Ryan: Fantastic.
• 42:15
  Ryan: All right, Paisley, you've brought such great insight.
• 42:18
  Ryan: It's been a fantastic conversation.
• 42:19
  Ryan: We've covered a lot.
• 42:21
  Ryan: So what does all this mean for financial advisors?
• 42:25
  Ryan: You mentioned that investors or financial advisors should fix the core first, which I think is fantastic, and then use themes as building blocks around it.
• 42:36
  Ryan: Really, what does that look like?
• 42:37
  Ryan: Sounds good on paper, but what does it look like, and how should advisors think about, you know, the sizing, the positions, time horizon, client suitability?
• 42:48
  Paisley Nardini, CFA, CAIA: Yeah.
• 42:48
  Paisley Nardini, CFA, CAIA: First and foremost, go back to what I had mentioned earlier is be thoughtful and be intentional with how you're allocating your client's capital.
• 42:55
  Paisley Nardini, CFA, CAIA: Know what you own and why you own it, and if you can't answer that, maybe it doesn't deserve to be in the portfolio, or if it does, maybe it deserves to be a smaller part.
• 43:04
  Paisley Nardini, CFA, CAIA: there's so many things to be excited about in the economy right now, and I think a lot of people might say, "Gas is six, seven bucks a, a barrel or a, a gallon.
• 43:14
  Paisley Nardini, CFA, CAIA: That's not very exciting, Paisley."
• 43:15
  Paisley Nardini, CFA, CAIA: I mean from an innovation perspective, from technology and advancements.
• 43:19
  Paisley Nardini, CFA, CAIA: So if you're not leaning into that and getting excited about that and having stories to talk to your clients about why you're putting their capital to work in this part of the market.
• 43:27
  Paisley Nardini, CFA, CAIA: So from a construction perspective, you said rethink the core and some of that may be passive.
• 43:32
  Paisley Nardini, CFA, CAIA: Again, this is not for me to say.
• 43:34
  Paisley Nardini, CFA, CAIA: There's, there, there is a role of passive in portfolios, but complement that with things that are actually diversified.
• 43:40
  Paisley Nardini, CFA, CAIA: I think a lot of times, we might allocate to a, a quality fund 'cause it's diversified.
• 43:46
  Paisley Nardini, CFA, CAIA: Actually look at the c- the top constituents in the funds that you're holding.
• 43:49
  Paisley Nardini, CFA, CAIA: Are they differentiated?
• 43:50
  Paisley Nardini, CFA, CAIA: Are they aligned with the themes that you're bullish on or optimistic on?
• 43:55
  Paisley Nardini, CFA, CAIA: And just be thoughtful, too, around your bond allocations.
• 43:57
  Paisley Nardini, CFA, CAIA: I think a lot of people have, that up to the experts sometimes, which is great.
• 44:02
  Paisley Nardini, CFA, CAIA: You can have an active allocation, but for investors out there that have gone passive in their bond portfolio, it's a really opportune time to think about being active as well.
• 44:11
  Paisley Nardini, CFA, CAIA: And again, that stock versus bond trade-off, that's a really hard decision, and I don't think any advisor is too excited to make that active decision.
• 44:18
  Paisley Nardini, CFA, CAIA: But diversification can be your best friend in times of uncertainty.
• 44:23
  Ryan: Yeah, I think that's fantastic.
• 44:25
  Ryan: And I often tell people, like, when I go to a party or a social, everyone comes up and they ask me what I do, and I'm like, "Well, I'm investment strateg- whatever."
• 44:35
  Ryan: And they're like, "Well, what's the best stock to invest?"
• 44:37
  Ryan: And I'm so boring, Paisley, because all I say is, "Well, just diversify.
• 44:41
  Ryan: Diversification."
• 44:43
  Ryan: But it, it, right now it's so prudent.
• 44:45
  Ryan: Right now it's w- you know, the prudent thing to do.
• 44:48
  Ryan: International has been fantastic.
• 44:50
  Ryan: Emerging markets has been leading markets.
• 44:53
  Ryan: So, you know
• 44:55
  Paisley Nardini, CFA, CAIA: thing I'll mention which, not to get too cute with this, but I think the easy decision was to relegate to passive index-based strategies 'cause you knew you were getting diversification and it was low cost.
• 45:07
  Paisley Nardini, CFA, CAIA: Guess what?
• 45:07
  Paisley Nardini, CFA, CAIA: You're-- It's-- Maybe it's still low cost, but you're not getting diversification anymore.
• 45:12
  Paisley Nardini, CFA, CAIA: so I think that's the biggest takeaway is, again, why did you originally buy this in the portfolio?
• 45:17
  Paisley Nardini, CFA, CAIA: Is it...
• 45:17
  Paisley Nardini, CFA, CAIA: Is the thesis still intact?
• 45:19
  Paisley Nardini, CFA, CAIA: And I think we can say for passive management, a core reason of having low-cost diversification, you're no longer getting that diversification.
• 45:26
  Paisley Nardini, CFA, CAIA: So that's reason enough to rethink the size and the role of it in a portfolio
• 45:31
  Ryan: He's like, I think that's a fantastic way of wrapping a bow around this conversation.
• 45:36
  Ryan: I think that's a great way of ending.
• 45:38
  Ryan: And once again, we got through a long conversation and once it did not get into an argument about Wisconsin being better than Minnesota.
• 45:49
  Ryan: So
• 45:49
  Paisley Nardini, CFA, CAIA: Maybe in sports are the differentiator and maybe the investment markets are the equalizer.
• 45:54
  Paisley Nardini, CFA, CAIA: So
• 45:54
  Ryan: Ooh, there we go.
• 45:55
  Ryan: I like it.
• 45:56
  Ryan: Maybe we should maybe that can be the title of this episode.
• 46:00
  Paisley Nardini, CFA, CAIA: exactly.
• 46:01
  Paisley Nardini, CFA, CAIA: Thanks for having me
• 46:02
  Ryan: Yes.
• 46:02
  Paisley Nardini, CFA, CAIA: pleasure
• 46:03
  Ryan: Hey, it's like, thank you so much.
• 46:05
  Ryan: I know you're busy.
• 46:06
  Ryan: A lot of new things going on over there, a lot of exciting opportunities, so thank you so much for taking the time.
• 46:12
  Ryan: Where can our audience get more information about Tima ETFs?
• 46:17
  Paisley Nardini, CFA, CAIA: Yeah.
• 46:17
  Paisley Nardini, CFA, CAIA: T-E-M-A ETFs.com, which is temaetfs.com.
• 46:21
  Paisley Nardini, CFA, CAIA: We have a lot of insights and research that our incredible portfolio management team is putting out on a weekly basis around markets, around, our strategies, of course, some of these themes that we talked about today.
• 46:34
  Paisley Nardini, CFA, CAIA: You can find me on LinkedIn and on X.
• 46:37
  Paisley Nardini, CFA, CAIA: But would love to engage and love to help you if you're an advisor think about how to allocate your portfolio for the next couple years.
• 46:44
  Ryan: Yeah, fantastic, Paisley.
• 46:45
  Ryan: And unlike what a lot of people may think, I actually do do some research before coming onto these calls.
• 46:51
  Ryan: You're exactly right.
• 46:52
  Ryan: Temma does some fantastic content, a lot of great information there.
• 46:57
  Ryan: Highly recommend the site, so go ahead, take a look.
• 47:01
  Ryan: Thank you everyone for listening to this episode of Views from 6230.
• 47:06
  Ryan: You can watch all of our other episodes on the Views from 6230 YouTube channel and Spotify.
• 47:12
  Ryan: Also, be sure to like and subscribe to those channels and give us a follow on LinkedIn.
• 47:16
  Ryan: Thank you very much, and have a great rest of your week